Bluefly Reports Third Quarter 2012 Results

  Bluefly Reports Third Quarter 2012 Results

                Announces $10 million working capital facility

Business Wire

NEW YORK -- November 21, 2012

Bluefly, Inc. (NASDAQ Capital Market: BFLY), a leading online retailer of
designer brands, fashion trends and superior value (www.bluefly.com), today
announced its results for the third quarter of 2012 as well as a new working
capital credit facility. “We continue to execute on our new strategy, and
while our net sales were only slightly up for the quarter, that we were able
to achieve sales of over $21 million with 25% less average inventory is a
testament to the efficiency of the new model we are building,” said Joseph
Park, the Company’s Chief Executive Officer. “Our new strategy optimizes
return on invested capital and we increased inventory turns by more than 80%
this quarter. Furthermore, healthy increases in free traffic, the continued
growth in our overall member file, and the cross over between Bluefly and
Belle & Clive member files position us well to leverage these drivers, which
we believe will enable us to improve operating performance going forward.
Product margins for the quarter were higher than the first quarter, however
our overall gross margins were negatively impacted by a 26% increase in
first-time customers and the associated acquisition costs from promotional
shipping and daily deal offers. We continue to see strong growth both from
Belle and Clive overall, as well as our international markets, where we
experienced over 44% growth in orders. As we move into the fourth quarter, we
will continue to optimize and refine our new strategy to maximize operating
results and increase shareholder value.”

Results for the third quarter of 2012 included the following highlights:

  *Net sales increased by approximately 3% to $21.7 million, from $21.2
    million in the third quarter of 2011, primarily as a result of a reduction
    in return rates, which were partially offset by a decrease in average
    order size, and a decrease in shipping and handling revenue related to
    increased promotional activity.
  *Gross profit margin decreased to 13.6%, from 29.1% in the third quarter of
    2011, primarily attributable to (i) the deliberate shift in our strategy
    as we increase inventory turns by selling merchandise at lower gross
    margin percentages (ii) an increase in freight costs due to free shipping
    and (iii) daily deal promotions that we offered to first-time customers
    during the quarter. While our gross profit margin decreased during the
    quarter, our inventory turns have improved by more than 80% for the three
    months ended September 30, 2012 compared to the three months ended
    September 30, 2011.

  *Total operating expenses increased by 2% to $8.9 million, from $8.7
    million in the third quarter of 2011. As a percentage of total net sales,
    total operating expenses remained relatively unchanged at 41% compared to
    the third quarter of 2011. The increase in total operating expenses was
    primarily attributable to an increase in total selling and fulfillment
    expenses of $0.6 million, which was partially offset by decreases in total
    marketing expenses of $0.3 million and total general and administrative
    expenses of $0.1 million, compared to the third quarter of 2011.
  *Operating loss increased to $6.0 million, from $2.5 million in the third
    quarter of 2011. Net loss attributable to stockholders was $6.3 million,
    or $0.22 per share (based on 28.6 million weighted average shares
    outstanding), compared to a net loss attributable to stockholders of $2.5
    million, or $0.10 per share (based on 25.5 million weighted average shares
    outstanding), in the third quarter of 2011.
  *Adjusted negative EBITDA increased to $4.8 million, from an adjusted
    negative EBITDA of $1.7 million in the third quarter of 2011.
  *Cash and cash equivalents decreased to $1.3 million at September 30, 2012,
    compared to $4.4 million at December 31, 2011.
  *Inventory decreased to $23.4 million at September 30, 2012, compared to
    $32.1 million at December 31, 2011.

On November 13, 2012, the Company secured a new $10 million senior-secured
working capital credit facility with Salus Capital Partners LLC (“Salus”). The
Salus facility replaces the Company’s $7.5 million credit facility with Wells
Fargo Retail Finance, LLC.

“We believe that Salus is a great complement to the Company’s new strategy and
we look forward to a mutually beneficial working relationship for many years
to come. Salus is well-positioned to assist us in our future plans.” said
Joseph Park, the Company’s Chief Executive Officer.

To supplement the consolidated financial results for the third quarter of 2012
presented in accordance with generally accepted accounting principles (GAAP),
the Company is also reporting adjusted EBITDA as a non-GAAP financial measure
that the Company believes allows for a better understanding of its operating
performance. The Company defines adjusted EBITDA as net loss attributable to
Bluefly, Inc. stockholders excluding interest income, interest expense to
related party stockholders, interest expense, income tax provision,
depreciation and amortization expenses adjusted for non-cash stock-based
compensation expenses. The Company believes that this non-GAAP financial
measure, when shown in conjunction with the corresponding GAAP measures,
enhances the investor’s and management’s overall understanding of the
Company’s current operating performance and provides greater transparency with
respect to key operating metrics used by management in its financial and
operational decision making process. The Company considers this non-GAAP
financial measure to be useful because it excludes certain non-cash and
non-operating charges, which enables investors and management to analyze
trends in the Company’s operations. The presentation of this non-GAAP
financial measure is not intended to be considered in isolation, as a
substitute for, or superior to, the financial information prepared and
presented in accordance with GAAP. For more information, please see the table
captioned “Reconciliation of Non-GAAP Financial Information,” which provides a
full reconciliation of actual results to the non-GAAP financial measures.

About Bluefly, Inc.

Founded in 1998, Bluefly, Inc. (NASDAQ Capital Market: BFLY) is a leading
online retailer of designer brands, fashion trends and superior value. Bluefly
is headquartered at 42 West 39^th Street in New York City, in the heart of the
Fashion District. In 2011, Bluefly expanded its portfolio, launching Belle &
Clive, a Members-only shopping destination that presents highly-curated
selections of important brands via limited-time sale events. For more
information, please call 212-944-8000 or visit www.bluefly.com.

This press release may include statements that constitute “forward-looking
statements,” usually containing the words “believe,” “project,” “expect” or
similar expressions. These statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements inherently involve risks and uncertainties that
could cause actual results to differ materially from the forward-looking
statements. The risks and uncertainties are detailed from time to time in
reports filed by the Company with the Securities and Exchange Commission,
including Forms 8-K, 10-Q and 10-K. These risks and uncertainties include, but
are not limited to, the following: the Company’s history of losses and
anticipated future losses; the risk of availability of additional capital, if
required, to satisfy the Company’s needs for cash flow, inventory supply and
growth of the business; the Company’s ability to realize benefits from new
initiatives such as its members-only web site Belle and Clive; risks related
to the Company’s shift in strategy to emphasize inventory turns over product
margin; the risks that our reduction in spending on offline marketing in favor
of online methods will continue to be successful; risks associated with the
new Belle & Clive initiative; risks associated with the slow recovery from the
unfavorable general economic environment; risks associated with affiliates of
Rho Ventures, LP, affiliates of Soros Fund Management, private funds
associated with Maverick Capital Ltd. and affiliates of Prentice Capital
Management, LP each owning a significant portion of our stock; the potential
failure to forecast revenues and/or to make adjustments to our operating plans
necessary as a result of any failure to forecast accurately; unexpected
changes in fashion trends; cyclical variations in the apparel and e-commerce
markets; risks associated with our dependence on certain concentrations of
suppliers for a material portion of our inventory; the risk of default by us
under our credit facility and the consequences that might arise from us having
granted a lien on substantially all of our assets under that agreement; risks
of litigation related to the sale of unauthentic or damaged goods and
litigation risks related to sales in foreign countries; our potential exposure
to product liability claims in the event that products sold by us are
defective; the dependence on third parties and certain relationships for
certain services, including our dependence on UPS and USPS (and the risks of a
mail slowdown due to terrorist activity) and our dependence on our third-party
web hosting, fulfillment and customer service centers; online commerce
security risks; our ability to raise additional capital, if needed, to support
the growth of our business; risks related to brand owners’ efforts to limit
our ability to purchase products indirectly; management of potential growth;
the competitive nature of our business and the potential for competitors with
greater resources to enter the business; the availability of merchandise; the
need to further establish brand name recognition; risks associated with our
ability to handle increased traffic and/or continued improvements to our Web
Site; rising return rates; dependence upon executive personnel who do not have
long-term employment agreements; the successful hiring and retaining of new
personnel; risks associated with expanding our operations; risks associated
with potential infringement of other’s intellectual property; the potential
inability to protect our intellectual property; government regulation and
legal uncertainties; uncertainties relating to the imposition of sales tax on
Internet sales and our ability to utilize our net operating losses.

CONSOLIDATED STATEMENTS OF OPERATIONS -                      
UNAUDITED
                                                                             
                                               Three Months Ended
                                               September 30,
                                               2012             2011
                                                                             
Net sales                                      $ 21,743,000     $ 21,194,000
Cost of sales                                   18,781,000     15,016,000 
Gross profit                                    2,962,000      6,178,000  
                                                                             
Gross margin                                     13.6%            29.1%
                                                                             
Selling and fulfillment expenses                 5,154,000        4,525,000
Marketing expenses                               1,848,000        2,123,000
General and administrative expenses             1,922,000      2,061,000  
Total operating expenses                        8,924,000      8,709,000  
                                                                             
Operating loss                                   (5,962,000 )     (2,531,000 )
                                                                             
Interest expense to related party                (270,000   )     --
stockholders
Other interest expense, net                     (88,000    )    (65,000    )
                                                                             
Net loss                                         (6,320,000 )     (2,596,000 )
                                                                             
Less: net loss attributable to                  (43,000    )    (102,000   )
non-controlling interest in Eyefly LLC
                                                                             
Net loss attributable to Bluefly, Inc.         $ (6,277,000 )   $ (2,494,000 )
stockholders
                                                                             

Basic and diluted net loss per common share
attributable to Bluefly, Inc.                  $ (0.22      )   $ (0.10      )
stockholders
                                                                             
Weighted average common shares outstanding      28,576,612     25,530,899 
(basic and diluted)


SELECTED CONSOLIDATED BALANCE SHEET                            
DATA & KEY METRICS – UNAUDITED
                                                  September 30,   December 31,
                                                  2012            2011
Cash and cash equivalents                         $ 1,254,000     $ 4,413,000
                                                                    
Inventories, net                                    23,443,000      32,083,000
                                                                    
Prepaid expenses and other current assets           5,249,000       6,240,000
                                                                    
Property and equipment, net                         6,489,000       5,705,000
                                                                  
                                                                    
Current liabilities                                 26,722,000      21,997,000
                                                                    
Stockholders’ equity (including non-controlling     9,932,000       26,256,000
interest in Eyefly LLC)
                                                                    
                                                  Three Months Ended
                                                  September 30,
                                                  2012            2011
                                                                    
                                                                    
Average order size (including shipping &          $ 226.33        $ 312.49
handling)*
New members added during the period*                198,562         315,815
                                                                    
*Excludes Eyefly

RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION – UNAUDITED
                                             
                                               Three Months Ended
                                               September 30,
                                               2012            2011
                                                                             
Net loss attributable to Bluefly, Inc.         $ (6,277,000 )   $ (2,494,000 )
stockholders
                                                                             
Interest income                                  --               --
Interest expense to related party                270,000          --
stockholders
Interest expense                                 88,000           66,000
Depreciation and amortization expenses           838,000          462,000
Non-cash stock-based compensation expenses      284,000        295,000    
                                                                             
Adjusted EBITDA                                $ (4,797,000 )   $ (1,671,000 )
                                                                             

Contact:

Investor/Press:
Bluefly, Inc.
Kara B. Jenny
Chief Financial Officer
212-944-8000 ext. 286
kara.jenny@bluefly.com
 
Press spacebar to pause and continue. Press esc to stop.